American Airlines Group Inc AAL shares are trading higher by 6.50% to $11.53 during Friday’s session amid a report that Spirit Airlines is engaging in bankruptcy talks with bondholders, sending ripples through the airline industry. Spirit’s stock plummeted more than 40% in pre-market trading, signaling deep financial troubles for the budget carrier.
This development comes as Spirit struggles to manage a $3.3 billion debt load, including over $1.1 billion in secured bonds maturing imminently, while facing the possibility of a Chapter 11 bankruptcy filing.
Why This Matters: For American Airlines, Spirit’s potential collapse presents a significant opportunity in several key areas. First and foremost, Spirit’s financial woes could lead to a reduced presence in the budget airline market. This would provide legacy carriers like American Airlines the chance to capture market share, especially among budget-conscious travelers who may now look to competitors for affordable flight options.
Furthermore, Spirit’s recent challenges—including cutting capacity by nearly 20% in the fourth quarter due to supply chain issues like the recall of Pratt & Whitney engines—means that there could be fewer seats available in the market overall.
This could lead to increased demand for flights from American Airlines, which would allow the company to adjust its pricing and potentially boost revenue on key domestic routes.
What Else: Additionally, with Spirit under financial strain, American Airlines could benefit from less competition in certain markets where Spirit has been a low-cost disruptor. The potential reduction in low-cost options for travelers might allow American Airlines to attract more price-sensitive customers who are now left with fewer choices.
Spirit's struggles might also prompt cost-cutting competitors like JetBlue to realign their strategies, further solidifying American’s dominant position in certain U.S. markets.
Moreover, with Spirit cutting capacity and facing operational challenges due to grounded planes and possible pilot furloughs, there is a possibility that American Airlines could absorb displaced travelers.
In the short term, this could result in increased bookings and higher load factors for American's flights, especially as travelers prioritize reliability during times of uncertainty.
How To Buy AAL Stock
By now you're likely curious about how to participate in the market for American Airlines – be it to purchase shares, or even attempt to bet against the company.
Buying shares is typically done through a brokerage account. You can find a list of possible trading platforms here. Many will allow you to buy ‘fractional shares,' which allows you to own portions of stock without buying an entire share. For example, some stock, like Berkshire Hathaway, can cost thousands of dollars to own just one share. However, if you only want to invest a fraction of that, brokerages will allow you to do so.
In the the case of American Airlines, which is trading at $11.77 as of publishing time, $100 would buy you 8.5 shares of stock.
If you're looking to bet against a company, the process is more complex. You'll need access to an options trading platform, or a broker who will allow you to ‘go short' a share of stock by lending you the shares to sell. The process of shorting a stock can be found at this resource. Otherwise, if your broker allows you to trade options, you can either buy a put option, or sell a call option at a strike price above where shares are currently trading – either way it allows you to profit off of the share price decline.
According to data from Benzinga Pro, AAL has a 52-week high of $16.15 and a 52-week low of $9.07.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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